Guidance on Flat Rate VAT Scheme
If your goods & materials used exclusively within your business are below either 2% of your turnover or less than £1000 a year, you must move to the new Limited Costs Business Flat Rate which is now 16.5%. Please remember that the flat rate amount is based on your gross not your net turnover figures, therefore if you turnover £20,000 a year plus VAT = £24,000 gross income – then on the new flat rate scheme this means you will be paying £3960 to HMRC per year.
When calculating if you are under the 2% or less than £1000 you have to take into account what you are not allowed to include, you can not include any of the following expenses whether they incur VAT or not:
- any services - which is anything that isn't goods
- expenses like travel and accommodation
- food and drink eaten by yourself or your staff
- vehicle costs including fuel unless you're in the transport business using your own, or a leased vehicle
- rent, internet, phone bills and accountancy fees
- gifts, promotional items and donations
- goods you will resell or hire out unless this is your main business activity
- training and memberships
- capital items, for example office equipment, laptops, mobile phones and tablets
There are a few things you can consider for your business –
- If you are under the VAT threshold of 85k a year turnover you can apply to deregister from VAT.
- You could switch to standard accounting for your VAT – you charge VAT on your income as normal however you reclaim the VAT on all your VATable expenses – travel, training, accountancy, paper, ink, subsistence etc
- You continue as you are and switch to the 16.5% rate, you become a Limited Cost Trader.
CASA is here to help you which ever decision you decide is right for your business.
If you wish to deregister, please advise us as soon as possible as the process can take a couple of weeks to come through with authorisation from HMRC.
Any questions please do not hesitate to contact us at firstname.lastname@example.org where we will be happy to help.